Backup stadium plan taps smokers, corporations

ST. PAUL, Minn. - Gov. Mark Dayton has proposed tapping smokers and corporations to fill in the funding gap for the state's share of the new Vikings stadium.

Revenue Commissioner Myron Frans unveiled the new plan during Thursday's meeting of the House-Senate tax conference committee, which is working to merge the House and Senate versions of the tax bills.

Frans said, if approved by the legislature, the State would inject an extra $24 million into the stadium reserve fund, to cover the funding shortfall in the 2014 and 2015.

That is contingent on the legislature raising cigarette taxes, beginning July 1st. The $24 million would be one-time new revenue captured by applying the new tax rate to stocks of cigarettes that were taxed at the old rate before being stored in warehouses.

"See we want to make sure people don't avoid the new cigarette tax by buying a bunch of cigarettes and tobacco products and then storing them until after July 1," Frans told KARE afterwards.

Frans based the $24 million figure on an assumption that the legislature will increase the cigarette tax by $1.29 per pack as part of the 2014-2015 budget.

Legislative leaders, however, announced later in the day they'd reached a three-way agreement with the governor to boost cigarette taxes $1.61 a pack.

The tax on cigarette "floor stocks" was already anticipated by members of the two tax committees. The only new element was the idea of dedicating that one-time tax revenue to paying for the Vikings stadium.

"What happens is that there are floor stocks that are at the old tax rates, and when the tax rate changes there's revenue generated by that tax rate change," Sen. Rod Skoe, the Democrat who heads the Senate Tax Committee, told reporters.

"Those are the new dollars the commissioner is talking about here."

The legislature last year agreed that the State would pay $348 million toward the construction of the stadium, and would pay for that by issuing appropriation bonds. Those bonds will be repaid, with interest, in annual installments of $30 million.

The stadium bill called for the state's share to be financed with taxes on new electronic pull tab and bingo games, so that the stadium would not siphon away general fund dollars needed to pay for ongoing state functions such as schools and health care.

But those new electronic games have not yet generated the amount of revenue originally expected while the tax bill was being debated in 2012. There's now a projected gap of $10 to $12 million in that gaming revenue in each of the next two years.

That's why stadium opponents, including Sen. Dave Thompson, balked at the idea of the cigarette floor stocks tax on Thursday.

"We were promised, those of us who opposed the stadium proposal, that this would not end up being tax money taken out of the general fund," Sen. Thompson, a Lakeville Republican, told reporters.

"The sad thing is we standing here on, four days before the session is supposed to end, talking about a piece of legislation that was passed last year!"

Skoe conceded that it's money that otherwise could be used for other general fund expenses, but it's also money that is considered a new source of revenue not currently collected.

"It's all fungible. It's all general fund revenue."

Commissioner Frans revealed a second stadium funding source would be derived from closing a corporate loophole that allows some companies to claim only part of the money they earn within the state's borders.

"We want to say, for example, if you have $15 million in sales in Minnesota you should pay taxes based on all that $15 million in sales, and not just part of it," Frans explained.

He said that revenue would be available in 2016, but would go to stadium funding only if electronic pull-tabs and electronic bingo haven't caught up to expectations by then.

If the loophole money isn't sufficient the State would have to rely on two other backup funding sources including in the original legislation -- a new state lottery game and a tax on stadium luxury suites.

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